COMMENT: Just quizzed the Canadian Bank insurance CDIC. It is obvious they do not have a specific time period in which to pay claims. Kept dancing around the specific question but they said they pay cash accounts ASAP so people can pay bills. Bottom line, contagion will destroy all financial obligations and transactions.
REPLY: No government that I am aware of has ANY plan for a contagion such as LTCM, S&L etc…. You must understand that the people who even dream up legislation have ZERO experience in markets. Absolutely everything is based upon a single failure of any institution. When the LTCM crisis hit, bids withdraw and institutions are unsure who to even trade with. This creates the NO BID crisis and volatility rises dramatically. The panic unfolds because of price moves without volume. When large gaps appear WITHOUT supporting news, even professionals sell because they cannot make a decision in a vacuum.
I have been in many meetings. There is just no comprehension of how markets or the economy even function at the highest levels. It is assumed that contagions are just flukes so there are absolutely NO contingency plans whatsoever. I have tended to get called in more as a crisis manager AFTER the fact – never before. When it all comes unglued, they seem to just need someone to talk to.
The underlying structure has been completely undermined. I have warned from INSIDE sources that these big fines paid by the banks are really to-line the pockets of government. That has created the false image of Too Big to Fail. The government is NOT interested in prosecuting bankers personally. There are no big bucks in that. They want the billion-dollar fines. More and more banks are leaving the marketplace because it is too expensive.
By extorting banks with huge fines, they have caused many banks to get out of proprietary trading. This has been shrinking liquidity laying the seed for the next crisis to be far worse than 2007-2009. Particularly European banks have been downsizing trading dramatically. It is being called the “juniorization” of the financial industry. The phrase means the banks have been engaging in the practice of firing senior traders and salespeople and replacing them with younger talent. This has been prevalent over the past few years as banks have sought to cut costs. What this is leading to is those with experience are retiring, which is increasing the risk that there will be nobody who knows even what to do in a crisis. It will be their first time up to bat. We have less experience unfolding in the industry combined with the number of participants declining, and regulators more interested in lining their pockets with extorting fines than protecting the financial system.
People who pretend to be analysts who have NO experience behind the curtain have no idea what has happened to the financial infrastructure. This is far more serious than the quantity theory of money or central bank balance sheets. They are not even close to the real dangers we face as government bureaucrats try to regulate something they are completely ignorant of in reality.
We have major institutions lining up for our computer services. They know there are risks nobody is talking about in the press. They are looking for objective forecasting that is not some OPINION or trading that is dependent upon DISCRETION. They know our models are geared to forecasting the contagion events that can easily be seen on the Global Market Watch.